You are currently viewing How To Use Non-Compete Agreements

How To Use Non-Compete Agreements

You may not want your employees to work for competing businesses, but what can you do about it? Depending on where you’re located, you may be able to use a non-compete agreement according to a business litigation lawyer. This contract, or clause in a larger contract, with an employee, mandates that they not work for a competitor or start one in a given geographic area over a set length of time after they leave your company.

The Good, The Bad, And The Ugly

A non-compete agreement (NCA) may help you protect your time, energy, and money investments in your business. An employee who leaves and works for a competitor may have a lot of information that could be used to boost their new employer at your cost. You may have invested a lot to train an employee and don’t want that investment to work against you in the future.

But NCAs have come under scrutiny because some employers take them too far as the lawyers at Focus Law LA have seen. Instead of selectively using them with employees who have beneficial skills or knowledge or are part of high-level management, all employees, including those with low-level skills or who receive little training, have become subjects of NCAs. These agreements don’t serve legitimate purposes. They reduce the turnover and suppress pay rates of easily replaced employees whose departure has little impact on the business.

These abuses have sparked more scrutiny of NCAs. They are limited (to one degree or another) in nine states and the District of Columbia. The Federal Trade Commission and the National Labor Relations Board announced actions to prevent their use, and these agencies have also initiated proceedings against some employers for using them.

Non-Compete Agreement Do’s And Don’ts

Whether these efforts to end their use will be successful remains to be seen. If a non-compete agreement (NCA) sounds useful and is legal in your state, you should take advantage of it while you can. Issues you should consider include:

  • State law: Non-compete laws vary greatly by state. There may be few limits on their use, or there may be few exceptions to their prohibition
  • Reasonableness: Where they’re allowed, non-compete agreements must be reasonable to be enforced by a court. Courts will generally consider whether there’s a legitimate business interest involved (trade secrets, confidential information, or customer relationships), the period the person must wait to work at a competitor (generally, the shorter the period, the more likely a judge will approve it), how wide the geographic scope, and whether the NCA applies to a limited number of key employees or everyone who works there
  • Consideration: In some states, you must provide something in exchange for the employee’s agreement to sign, like a salary, continued benefits, or additional training
  • Public policy: Courts will consider public policy issues, like restraints on an employee’s ability to earn a living and the negative impact on the job market if employees aren’t free to seek and obtain new and better jobs elsewhere

If you want to explore using an NCA with your workforce, speak with an attorney experienced with employment law so you can get the benefits you seek while complying with applicable laws.